On The Rise And Fall Of Microvast
Summary
- Microvast has seen its stock price fall by just over 67% from its 2021 peak.
- The company has revised its revenue guidance downward from the initial number provided when its merger with Tuscan was announced.
- With cash of $700 million raised from the merger, the company holds ample liquidity to capitalize on the great electrification wave.
Microvast (NASDAQ:MVST) was once flying high on strong electric vehicle euphoria. The company's stock price was trading close to $25 and enthusiasm was building around its first US factory, the partnership with Oshkosh (OSK), and the potential revenue opportunity of the U.S. Postal Service contract for modernization and partial electrification of its delivery fleet. Then the bear market hit and Microvast found its stock price cut in half as sentiment evaporated, then almost in half again as lingering sentiment on the sector and the broader deSPAC space got crushed.
Current bulls now hold in the period coming after the fall. A period that can only really be escaped through strong financial results and a clear plan by management to capture value against a total addressable market that is still in the very early innings of its growth. The market is being driven by the decarbonisation of transportation stemming from increased awareness and acceptance of the impact of anthropogenic climate change on the planet.
Microvast aims to capitalize on opportunities for commercial electric vehicles. This has been estimated to have a total addressable market of $30 billion by 2025, assuming batteries have a 35% share of what would be an EV penetration rate of 9% of a $1 trillion market in commercial vehicle sales. This will include trucks, light-duty vans, buses, trains, and speciality mining vehicles. Hence, against Microvast's current market capitalization of $2.7 billion, the market ahead implies ample potential for growth.
Recent Earnings Highlight Bottlenecks To The Now Forgotten Long Argument
Microvast's fiscal 2021 second quarter results saw the fledgling battery manufacturer realize revenue of $33.4 million, a 54% year-over-year growth from $21.7 million. However, the company saw gross profit come in negative at $6.8 million, compared to a profit of $3.6 million in the year-ago quarter. This was negatively impacted by inventory write-downs, a higher proportion of sales generated in China as these have a lower average selling price, and an increase in the cost of raw materials compared to the year-ago period. Further, the industry-wide shortage of semiconductors led to a lower volume of orders placed, impacting both revenue growth and increasing cost per unit.
The company's cash loss from operations also grew to $13 million from a gain of $1.3 million in the year-ago quarter. This along with a capital expenditure of $4.4 million saw FCF come in at a negative $17.3 million. As Microvast was able to raise more than $700 million in net proceeds with its business combination with Tuscan Holdings Corp, the company has ample liquidity to fund losses for the foreseeable future without leaning too much on the market for new funding. It also allows them to build on their plan to fully ride the global electrification wave. This will include investments in new manufacturing facilities to expand capacity and near-term plans to add a total of 4 GWh of high-volume manufacturing capacity in Clarksville, Tennessee and Huzhou, China. However, as a result of the dramatic delays in the closing of their merger with Tuscan, the company now expects this capacity to come online in early 2023 from 2022.
Microvast expects full-year revenue for fiscal 2021 to be in the range of $145 million to $155 million. When compared with the $2.7 billion market capitalization, we get a forward price to sales of 17.4x using the top end of the revenue guidance. This would also imply a year-over-year growth of 44.2% compared to $107.5 million in the preceding fiscal year. This is 32% lower than the guidance of $230 million provided when their go-public merger was announced. This means Microvast joins other decarbonisation plays like Romeo Power (RMO) in pulling guidance subsequent to the closing of their merger. This risk posed by rising commodity prices is salient and looks set to remain a major factor in the coming quarters with an obvious negative impact on revenue and gross profits.
On The Rise And Fall Of A Fledgling Battery Company
Microvast operates in a space set to see material growth in the years ahead as concerns over the impact of man on our planet morph into momentum with the adoption of zero-carbon technologies. The electrification of transportation forms a tranche of this multi-decade shift that will see entire economies wholly supplant the current fossil fuel status quo with all-electric alternatives. Hence, the company's longer-term future looks bright even as it currently suffers through industry-wide supply chain and logistics challenges, collapsed investor sentiment, and rising commodity prices.
Microvast though its presence in both China and the USA is set to ride the electrification tailwinds of the world's largest economies. However, the current stock price, albeit a material reduction from its peak, is still quite expensive against dampened operational momentum. And while I hold shares, I will only look to expand my position on improvements to this momentum.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of MVST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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